-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SfI9rWQMzV8DyUfwhR+oXX0+sNcEmzzxlrymPSZdad51jQziXpPbfbxo1tDABDzI PQwfupIBEvLPY0yKPlcHVg== 0001047469-99-021107.txt : 19990518 0001047469-99-021107.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-021107 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP CENTRAL INDEX KEY: 0001070680 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341877137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25045 FILM NUMBER: 99627115 BUSINESS ADDRESS: STREET 1: C/O CENTRAL FEDERAL SAVINGS AND LOAN STREET 2: ASSOCIATION OF WELLSVILLE 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 BUSINESS PHONE: 3305321517 MAIL ADDRESS: STREET 1: C/O CENTRAL FEDERAL SAVINGS & LOAN STREET 2: WELLSVILLE /601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 10QSB 1 10-QSB GRAND CENTRAL FINANCIAL CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark one) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to______________ Commission File Number 0-25945 ------- GRAND CENTRAL FINANCIAL CORP. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 34-1877137 - -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 601 Main Street, Wellsville, Ohio 43968 ---------------------------------------- (Address of principal executive offices) (330) 532-1517 --------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class: Outstanding at April 30, 1999 Common stock, $0.01 par value 1,938,871 common shares GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB QUARTER ENDED MARCH 31, 1999 INDEX PART I. FINANCIAL INFORMATION
Page ---- ITEM 1 - Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ............................................................... 3 Consolidated Statements of Income for the three months ended March 31, 1999 and 1998.......................................................... 4 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 1999........................................ 5 Consolidated Statements of Comprehensive Income for the three months ended March 31, 1999 and 1998 ................................................... 6 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998.................................................... 7 Notes to Consolidated Financial Statements ...................................... 8 ITEM 2 - Management's Discussion and Analysis or Plan of Operation..................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................. 20 Item 2. Changes in Securities and Use of Proceeds..................................... 20 Item 3. Defaults Upon Senior Securities............................................... 20 Item 4. Submission of Matters to a Vote of Security Holders........................... 20 Item 5. Other Information............................................................. 20 Item 6. Exhibits and Reports on Form 8-K.............................................. 20 SIGNATURES ............................................................................ 22
PART I. FINANCIAL INFORMATION GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
March 31, December 31, 1999 1998 --------- --------- ASSETS Cash and amounts due from depository institutions $ 2,376 $ 1,372 Interest-bearing deposits in other banks 2,588 24,654 --------- --------- Total cash and cash equivalents 4,964 26,026 Securities available-for-sale 4,776 5,149 Securities held-to-maturity (estimated fair value of $62,632 in 1999 and $32,963 in 1998) 62,871 32,629 Loans held for sale -- 1,152 Loans, net 64,015 62,949 Federal Home Loan Bank, at cost 2,746 2,699 Premises and equipment, net 2,187 2,139 Accrued interest receivable 799 571 Other assets 303 122 --------- --------- Total assets $ 142,661 $ 133,436 --------- --------- --------- --------- LIABILITIES Deposits Non-interest bearing $ 1,068 $ 5,471 Interest bearing 79,111 79,167 --------- --------- Total deposits 80,179 84,638 Federal Home Loan Bank Advances 29,902 16,029 Advance payments by borrowers for taxes and insurance 384 776 Accrued interest payable 231 89 Other liabilities 95 131 --------- --------- Total liabilities 110,791 101,663 --------- --------- SHAREHOLDERS' EQUITY Preferred stock, authorized 1,000,000 shares, no shares issued and outstanding Common stock, $.01 par value, 6,000,000 shares authorized, 1,938,871 shares issued 19 19 Additional paid-in capital 18,574 18,720 Retained earnings, substantially restricted 14,549 14,330 Obligation under employee stock ownership plan (1,312) (1,339) Accumulated other comprehensive income 40 43 --------- --------- Total shareholders' equity 31,870 31,773 --------- --------- Total liabilities and shareholders' equity $ 142,661 $ 133,436 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements. 3. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amount)
Three months ended March 31, ---------------------- 1999 1998 ------ ------ INTEREST INCOME Loans, including fees $1,297 $1,211 Interest on securities: Taxable 877 946 Non-taxable 3 4 Interest-bearing deposits in banks 97 47 ------ ------ Total interest income 2,274 2,208 INTEREST EXPENSE Deposits 817 858 FHLB borrowings 283 401 ------ ------ Total interest expense 1,100 1,259 NET INTEREST INCOME 1,174 949 Provision for loan losses -- -- ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,174 949 NON-INTEREST INCOME Service charges 49 37 Gain on sale of loans 12 21 Gain (loss) on sale of securities 11 -- Other income 20 11 ------ ------ Total non-interest income 92 69 NON-INTEREST EXPENSE Salaries and employee benefits 446 405 Net occupancy expense 131 94 Data processing expense 42 34 FDIC assessments 12 12 Franchise taxes 64 53 Other expenses 249 168 ------ ------ Total non-interest expense 944 766 Income before income taxes 322 252 Income tax expense 103 64 ------ ------ Net income $ 219 $ 188 ------ ------ ------ ------ Basic and diluted earnings per share $ 0.12 N/A
See accompanying notes to consolidated financial statements. 4. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(In thousands) Accumulated Additional Obligation Other Total Common Paid in Retained Under Comprehensive Shareholders Stock Capital Earnings Esop Income Equity ----- ------- -------- ---- ------ ------ Balances at January 1, 1999 $ 19 $ 18,720 $ 14,330 $ (1,339) $ 43 $ 31,773 Employee stock ownership plan obligation 27 27 Stock issuance costs (146) (146) Comprehensive income: Net income 219 219 Change in unrealized gain (loss) on securities available-for-sale, net of tax (3) (3) ------- Total Comprehensive Income 216 ----- -------- --------- ---------- -------- ------- Balances at March 31, 1999 $ 19 $ 18,574 $ 14,549 $ (1,312) $ 40 $31,870 ----- -------- --------- ---------- -------- ------- ----- -------- --------- ---------- -------- -------
See accompanying notes to consolidated financial statements. 5. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands)
Three Months Ended March 31, --------------------- 1999 1998 ----- ----- NET INCOME $ 219 $ 188 Other comprehensive income, net of tax Unrealized gain (loss) on securities available for sale arising during the period (10) (3) Less: Reclassified adjustment for accumulated gains included in net income 7 -- ----- ----- Unrealized gains (losses) on securities (3) (3) ----- ----- COMPREHENSIVE INCOME $ 216 $ 185 ----- ----- ----- -----
See accompanying notes to consolidated financial statements. 6. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, --------------------------- 1999 1998 -------- -------- NET CASH FROM OPERATING ACTIVITIES $ 887 $ 2,235 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Purchases (690) -- Proceeds from sales 134 -- Proceeds from maturities and payments 922 2,246 Securities held to maturity Purchases (34,857) (10,000) Proceeds from maturities and payments 4,615 2,151 Net change in loans (984) (3,436) Purchases of premises and equipment (111) (110) -------- -------- Net cash from investing activities (30,971) (9,149) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits (4,459) 1,236 Net change in other borrowings (392) (360) Proceeds from long-term FHLB advances 14,700 9,000 Repayment of long-term FHLB advances (827) (5,315) -------- -------- Net cash from financing activities 9,022 4,561 NET DECREASE IN CASH AND CASH EQUIVALENTS (21,062) (2,353) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,026 5,846 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,964 $ 3,493 -------- -------- -------- -------- SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $ 958 $ 1,125 Income taxes -- --
See accompanying notes to consolidated financial statements. 7. GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unless otherwise indicated, amounts in thousand. BASIS OF PRESENTATION: These interim consolidated financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of Grand Central Financial Corp. ("Company") and its sole subsidiary, Central Federal Savings and Loan Association of Wellsville ("Association"), at March 31, 1999, and its results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying unaudited consolidated financial statements do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances. The results of operations for the three month period ended March 31, 1999 and 1998 are not necessarily indicative of the results that may be expected or that have occurred for the entire year. The annual report for the Company for the year ended December 31, 1998, contains consolidated financial statements and related notes that should be read in conjunction with the accompanying unaudited consolidated financial statements. Effective December 30, 1998, Central Federal Savings & Loan Association of Wellsville converted from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan with the concurrent formation of a holding company, Grand Central Financial Corp. The conversion was accomplished through an amendment of the Association's articles of incorporation and the sale of the Company's common stock in an amount equal to the pro forma market value of the Association after giving effect to the conversion. CONSOLIDATION POLICY: The consolidated financial statements include the accounts of the Company and the Association. All significant intercompany transactions and balances have been eliminated. NATURE OF OPERATIONS: The Company is engaged in the business of banking with operations and six offices in Wellsville, Ohio and surrounding areas, which are primarily light industrial areas. These communities are the source of substantially all of the Company's deposits and loan activities. The Company's primary source of revenue is single-family residential loans to middle income individuals. INVESTMENT AND MORTGAGE-BACKED SECURITIES: The Company classifies investment and mortgage-backed securities as held to maturity, trading or available for sale. Securities classified as held to maturity are those that management has the positive intent and ability to hold to maturity. Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities classified as available for sale are those that management intends to sell or that could be sold for liquidity, investment management, or similar reasons, even if there is not a present 8. (Continued) GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) intention for such a sale. Securities available for sale are carried at fair value with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. Gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. Securities are written down to fair value when a decline in fair value is not temporary. LOANS: Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income on loans is accrued over the term of the loans based upon the principal outstanding. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the collateral, and current economic conditions. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued and unpaid, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower demonstrates the ability to make periodic interest payments in which case the loan is returned to accrual status. Loans considered to be impaired, as identified according to internal loan review standards, are reduced to the present value of expected future cash flows or to the fair value of collateral by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such an increase will be reported as a provision for loan losses charged to operations. Management analyzes loans on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 30 days or more. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one to four family residences, residential construction loans, home equity, and other consumer loans, with balances less than $200,000. Loans are generally moved to non-accrual status when 90 days or more past due. These loans may also be considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The nature of the disclosures for impaired loans is considered generally comparable to prior nonaccrual loans and non-performing and past due asset disclosures. 9. (Continued) GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EARNINGS PER SHARE: Basic earnings per common share for the three months ended March 31, 1999 was based on earnings for the three months then ended, divided by the weighted average number of common shares outstanding for the period. The Company had no dilutive securities at March 31, 1999. The weighted average shares outstanding were 1,807,649 for the three months ended March 31, 1999. Earnings per share information for 1998 is not meaningful since the mutual to stock conversion was not consummated until December 30, 1998. NOTE 2 - INVESTMENT AND MORTGAGE BACKED SECURITIES The carrying values and estimated fair values of investment and mortgage-backed securities are summarized as follows:
March 31, 1999 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------- ---------- ---------- --------- (In thousands) AVAILABLE FOR SALE: Municipal securities $ 175 $ 3 $ 178 U.S. government and federal agencies 67 1 68 Mortgage-backed securities: Freddie Mac 310 1 (1) 310 Fannie Mae 1,822 23 1,845 Ginnie Mae 2,341 34 2,375 ------- ------- ------- ------- Total $ 4,715 $ 62 (1) $ 4,776 ------- ------- ------- ------- ------- ------- ------- ------- HELD TO MATURITY: U.S. government and federal agencies $16,547 $ $ (72) $16,475 Corporate notes 3,956 4 (1) 3,959 Mortgage-backed securities: Freddie Mac 20,449 186 (306) 20,329 Fannie Mae 14,589 50 (108) 14,531 CMO's 7,330 8 7,338 ------- ------- ------- ------- Total $62,871 $ 248 $ (487) $62,632 ------- ------- ------- ------- ------- ------- ------- -------
10. (Continued) GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 2 - INVESTMENT AND MORTGAGE BACKED SECURITIES (Continued)
December 31, 1998 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------------- -------------- --------------- --------------- (In thousands) AVAILABLE FOR SALE: Municipal securities $ 175 $ 4 $ 179 Mortgage-backed securities: Freddie Mac 342 1 343 Fannie Mae 2,056 30 2,086 Ginnie Mae 2,508 33 2,541 --------------- -------------- --------------- --------------- Total $ 5,081 $ 68 $ 5,149 --------------- -------------- --------------- --------------- --------------- -------------- --------------- --------------- HELD TO MATURITY: U.S. government and federal agencies $ 998 $ 8 $ $ 1,006 Corporate notes 1,494 (6) 1,488 Mortgage-backed securities: Freddie Mac 17,019 312 17,331 Fannie Mae 4,078 78 (9) 4,147 CMO's 9,040 (49) 8,991 --------------- -------------- --------------- --------------- Total $ 32,629 $ 398 $ (64) $ 32,963 --------------- -------------- --------------- --------------- --------------- -------------- --------------- ---------------
NOTE 3 - LOANS RECEIVABLE Loans are summarized as follows:
March 31, December 31, 1999 1998 -------- -------- (In thousands) Loans secured by real estate: Construction loans on single family residences $ 1,094 $ 735 Single family 45,644 45,441 Multi-family and commercial 1,118 1,150 Commercial loans 302 263 Consumer loans 16,229 15,739 -------- -------- 64,387 63,328 Allowance for loan losses (372) (379) -------- -------- Total $ 64,015 $ 62,949 -------- -------- -------- --------
11. GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - LOANS RECEIVABLE (Continued) An analysis of the allowance for loan losses is as follows:
Three months ended March 31, 1999 1998 ----- ----- (In thousands) Balance, beginning of period $ 379 $ 231 Loans charged off (7) (1) Recoveries -- -- Provision for losses -- -- ----- ----- Balance, end of period $ 372 $ 230 ----- ----- ----- -----
12. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion compares the financial condition of Grand Central Financial Corp ("Company") and its wholly owned subsidiary, Central Federal Savings and Loan Association of Wellsville (the "Association") at March 31, 1999 to December 31, 1998 and the results of operations for the three months ended March 31, 1999 and 1998. This discussion should be read in conjunction with the interim financial statements and footnotes included herein. FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions which are not subject to certain risks and uncertainties for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. When used herein, the terms "anticipates", "plans", "expects", "believes", and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the SEC. The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. GENERAL The Company's results of operations are dependent primarily on net interest income, which is the difference ("spread") between the interest income earned on its loans, mortgage-backed securities, and securities portfolio and its cost of funds, consisting of interest paid on its deposits and borrowed funds. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Company's net income is also affected by, among other things, loan fee income, provisions for loan losses, service charges, operating expenses and franchise and income taxes. The 13. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Company's revenues are derived primarily from interest on mortgage loans, consumer loans, mortgage-backed securities and securities, as well as income from service charges and loan originations. The Company's operating expenses principally consist of employee compensation and benefits, occupancy, federal deposit-insurance premiums and other general and administrative expenses. The Company's results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company. MANAGEMENT STRATEGY The Company is a community oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. The Company attracts deposits from the general public and uses such deposits, together with borrowings and other funds, to originate one-to four-family residential mortgage loans and short-term consumer loans. To a lesser extent, the Company also originates residential construction loans in its market area and a limited amount of commercial business loans and loans secured by multi-family and non-residential real estate. Management has sought in recent years to expand the business of the Company by establishing additional branches to service additional customers in its market area. Management's efforts in increasing the Company's volume of shorter-term consumer loans have been intended to help reduce interest rate risk, as well as to build on the Company's residential mortgage business. The Company's deposits are insured up to the maximum allowable amount by the Savings Association Insurance Fund (the "SAIF"), and administered by the Federal Deposit Insurance Corporation (the "FDIC"). The Company also invests in mortgage-backed securities, most of which are insured or guaranteed by federal agencies, as well as securities issued by the U.S. government or agencies thereof. The Company is not aware of any market or institutional trends, events or uncertainties that are expected to have a material effect on liquidity, capital resources or operations, except as discussed below. The Company is also not aware of any current recommendations by its regulators which would have a material effect if implemented, except as discussed below. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998 Total assets of the Company were $142.7 million at March 31, 1999, compared to $133.4 million at December 31, 1998, representing an increase of $9.2 million, or 6.9%. The primary component in the increase in total assets was a $29.9 million increase in total securities (including securities available for sale and held to maturity) which was partially offset by a decrease in cash and cash equivalents of $21.1 million. The increase in assets was primarily funded by $17.2 million net proceeds from the conversion from a mutual association to a stock company and an increase of $13.9 million in FHLB advances. The increase in securities was 14. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION primarily due to management moving the conversion proceeds from cash and cash equivalents to the securities portfolio and the use of FHLB advances to fund securities purchases through an arbitrage transaction. Management entered into the arbitrage transaction in order to better leverage the new capital and enhance earnings. The Company plans to utilize the proceeds from the conversion to fund loan growth as loan demand allows. In the short term, the proceeds will continue to be invested in the securities portfolio. The majority of securities purchased with the proceeds from the offering mature within one year. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998 GENERAL. Net income for the three months ended March 31, 1999 increased by $31,000 or 16.5% from $188,000 for the three months ended March 31, 1998 to $219,000 for the three months ended March 31, 1999. The increase was primarily due to the increase in net interest income and non-interest income which was partially offset by an increase in non-interest expense and tax expense. NET INTEREST INCOME. Net interest income is the largest component of the Company's net income, and consists of the difference between interest income generated on interest-earnings assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. Net interest income increased approximately $225,000, or 23.7%, from $949,000 for the three months ended March 31, 1998 to $1,174,000 for the three months ended March 31, 1999. The primary reason for this change was a decrease in interest expense of $159,000, or 12.6%, and an increase in interest income of $66,000, or 3.0%. The decrease in interest expense was due to a decline in the cost of funds along with a decrease in average interest bearing liabilities outstanding, but borrowings went up at the end of the quarter. The increase in interest income was due to an increase in average earning assets which was partially offset by a decline in the yield on earning assets. The decline in the yield on earning assets and decline in cost of funds was due to a decline in overall market interest rates. PROVISION FOR LOAN LOSSES. The provision for loan losses is based on management's regular review of the loan portfolio, which considers factors such as past experience, prevailing general economic conditions and considerations applicable to specific loans, such as the ability of the borrower to repay the loan and the estimated value of the underlying collateral, as well as changes in the size and growth of the loan portfolio. No provision for loan losses was recorded during the three months ended March 31, 1999 or 1998. At March 31, 1999, the allowance for loan losses represented .58% of total loans 15. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION compared to .59% at December 31, 1998. Management believes the allowance for loan losses is adequate to absorb probable losses; however, future additions to the allowance may be necessary based on changes in economic conditions. NONINTEREST INCOME. The Company experienced a $23,000, or 33.3%, increase in noninterest income during the first three months of 1999 compared to the same period in 1998. The increase was primarily due to an increase in service charge income of $12,000 and an increase in gain on sale of securities of $11,000. NONINTEREST EXPENSE. Noninterest expense increased $178,000, or 23.2%, primarily due to increases of $41,000 in salaries and benefits expense, $37,000 in occupancy expense and $81,000 in other operating expense. The increase in both salaries and benefits and net occupancy expense were a direct result of the branch offices opened in late 1997 and the two branch offices opened during 1998. The branches are leased facilities located in Phar-Mor stores and have allowed the Company to expand its market area by entering the Youngstown and Boardman markets. Salaries and benefits and net occupancy costs are expected to increase due to the impact of the additions. In addition, a portion of the increases in salary and benefits expense was due to the Employee Stock Ownership Plan put in place when the Company converted from a mutual association to a stock company and the cost of the shares allocated to participants based on this plan. The increase in other expenses includes increased expenses associated with the additional branch offices, increased professional fees as a result of being a public company and increased data processing costs related to Y2K. INCOME TAXES. The provision for income taxes totaled $103,000 for the three months ended March 31, 1999 compared to $64,000 for the three months ended March 31, 1998, due to the increase in income before income taxes. LIQUIDITY AND CAPITAL RESOURCES The Association's primary sources of funds are deposits, principal and interest payments on loans, mortgage-backed and investment securities and borrowings from the FHLB-Cincinnati. The Association uses the funds generated to support its lending and investment activities as well as any other demands for liquidity such as deposit outflows. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows, mortgage prepayments and the exercise of call features are greatly influenced by general interest rates, economic conditions and competition. The Association has continued to maintain the required levels of liquid assets as defined by OTS regulations. This requirement of the OTS, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The Association's currently required liquidity ratio is 4.0%. At March 31, 1999, the Association's liquidity ratio was 20.3%. 16. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION At December 31, 1998, the Association exceeded all of its regulatory capital requirements with a tangible capital level of $21.8 million, or 16.25%, of total adjusted assets, which is above the required level of $2.0 million, or 1.5%; core capital of $21,799 million, or 16.25%, of adjusted total assets, which is above the required level of $4.0 million, or 4.0%; and risk-based capital of $22.2 million, or 37.95%, of risk-weighted assets, which is above the required level of $4.7 million, or 8.0%. The Association's most liquid assets are cash and cash equivalents. The levels of those assets are dependent on the Association's operating, financing, lending and investing activities during any given period. At March 31, 1999, cash and cash equivalents totaled $5.0, or 3.5% of total assets. The Association has other sources of liquidity if a need for additional funds arises, including FHLB advances. At March 31, 1999, the Association had $29.9 million in advances outstanding from the FHLB-Cincinnati, and at March 31, 1999, had an additional overall borrowing capacity from the FHLB of $25.0 million. Depending on market conditions, the pricing of deposit products and FHLB advances, the Association may rely on FHLB borrowing to fund asset growth. The Association relies primarily on competitive rates, customer service and long-standing relationships with customers to retain deposits. Based on the Association's experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Association. YEAR 2000 COMPLIANCE As the year 2000 approaches, an important business issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Many existing application software products were designed to accommodate only two-digits. For example, "98" is stored on the system to represent 1998. Accordingly, operating systems upon which the Company relies may recognize "00" as the year 1900 rather than 2000, causing the systems to fail or generate erroneous information. Although there can be no assurance that the Company and its service providers and vendors will be successful in remedying all potential problems, the Company has conducted a comprehensive review of its computer systems and equipment to identify applications that could be affected by the "Year 2000" problem and has implemented a plan designed to ensure that all software used in connection with the Company's business will manage and manipulate data involving the transition with data from 1999 to 2000 without functional or data abnormality and without inaccurate results related to such data. Pursuant to the plan, the Company has developed and implemented testing strategies and plans for testing internal mission critical systems and testing mission critical systems of service providers and vendors. Pursuant to the plan, the 17. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Company also proposes to identify material customers and evaluate Year 2000 risks that may be associated with them. The Company's mission critical data processing is performed under agreements with FISERV, Inc. ("FISERV"), a nationwide financial service bureau which performs loan processing, savings deposit processing, and other financial services. Consequently, the Company is very dependent on this service bureau to conduct its business. The Company has already contacted FISERV, as well as each of its other service providers to request schedules for year 2000 compliance and expected costs, if any, to be passed along to the Company. The Company believes that FISERV has completed its remediation efforts and is engaged in the testing phase of its Year 2000 plan. However, the Company has not received written assurances by FISERV that it is Year 2000 compliant. As a member of FISERV's client advisory group, the Company participated in the group testing of the FISERV systems that was completed prior to December 31, 1998. The Company completed individual testing with FISERV during the first quarter of 1999. The Company's other service providers, which interface with FISERV, also completed their testing for Year 2000 compliance. The Company's in-house computers play a less critical role in the Company's operations and have been upgraded for Year 2000 compliance. Testing of these systems was completed by December 31, 1998. The Company believes that its costs related to Year 2000 will be approximately $70,000, in addition to any increased costs passed through as higher fees charged by service providers, which costs are not yet determined. Management does not expect these costs to have a significant impact on the Company's financial position or results of operations. However, there can be no assurance that all service providers' systems will be Year 2000 compliant, consequently, the Company could incur incremental costs to convert to another service provider. In addition to possible expense related to its own systems, the Company could incur losses if year-2000 issues adversely affect the Company's depositors or borrowers. Such problems could include delayed loan payments due to year-2000 problems affecting any of the Company's significant borrowers or impairing the payroll systems of large employers in the Company's market area. The Company has determined that Year 2000 non-compliance by any individual loan customer would have no material impact on the Company. Because the Company's loan portfolio is highly diversified with regard to individual borrowers and types of businesses, the Company does not expect any significant or prolonged year-2000 related difficulties arising from its customers that will affect the earnings or cash flows. The risks associated with the Year 2000 issue, however, could go beyond the Company's own ability to solve Year 2000 problems. Should suppliers of critical services fail in their efforts to be Year 2000 compliant, it could have significant adverse financial results for the Company. Accordingly, the Company is developing Year 2000 remediation contingency plans for mission-critical systems. (These plans would likely involve replacement of service providers and alternatives to the Company's established plan. The Company has completed the majority of testing as of March 31, 1999 as stated in previous paragraphs. The Company will continue to develop their contingency plan over the next quarter based on the results from their testing.) 18. GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The above discussion contains certain forward-looking statements. The discussion is based on the Company's current estimates that are subject to uncertainties that could cause the implementation of the schedule, the costs and the results contemplated by the plan to differ materially from the Company's expectation. Such uncertainties include, but are not limited to, the continued progress and eventual success of service providers and other persons on which the Company and it customers depend. 19. GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB Quarter ended March 31, 1999 PART II - OTHER INFORMATION Item 1 Legal Proceedings. Neither the Company nor its banking subsidiary, Central Federal Savings and Loan Association of Wellsville, is a party to any material legal proceedings at this time. From time to time the Company and its banking subsidiary are involved in various claims and legal actions arising in the ordinary course of business. Item 2 Changes in Securities and Use of Proceeds. The following information is provided in connection with the Company's sale of its common stock as part of the Association's conversion. a. The effective date of the Registration Statement on Form SB-2 (File No. 333-64089) was November 12, 1998. b. The offering was consummated on December 30, 1998 with the sale of all securities registered pursuant to the Registration Statement. Sandler O'Neill & Partners, L.P., acted as marketing agent for the offering. c. The class of securities registered was common stock, par value $.01 per share. The aggregate amount of such securities registered was 1,938,871 shares which represented an aggregate amount of $19,388,710. d. The expenses incurred in connection with the conversion and offering was $774,000, including expenses paid to or for underwriters of $214,000, attorney and accounting fees of $360,000 and other expenses of $200,000. The net proceeds resulting from the offering after deducting expenses was $18,615,000. e. The net proceeds are invested in capital stock of the subsidiary savings and loans and investment securities. Item 3 Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits 20. GRAND CENTRAL FINANCIAL CORP. Quarter ended March 31, 1999 PART II - OTHER INFORMATION 3.1 Certificate of Incorporation of Grand Central Financial Corp. (1) 3.2 Bylaws of Grand Central Financial Corp. (1) 16.1 Letter re: change in Certifying Accountant (2) 21.0 Subsidiaries Information Incorporated Herein by Reference to Part 1 - Subsidiary Activity 27.0 Financial Data Schedule (1) Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-64089. (2) Incorporated by reference into this document from Current Report on Form 8-K, filed by the Company on January 15, 1999 and amended on January 26, 1999. (b) Reports on Form 8-K The Company filed a report on Form 8-K on January 15, 1999 and amended it on January 26, 1999, reporting under Item 4 a change in the Company's independent accountants. On January 11, 1999, the registrant changed independent auditors by replacing Robb, Dixon, Francis, Davis, Oneson & Company, with Crowe, Chizek and Company LLP. Robb, Dixon, Francis, Davis, Oneson & Company's reports on the financial statements for the past two years contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. Also, there were no disagreements with Robb, Dixon, Francis, Davis, Oneson & Company on any matter of accounting principles or practice, financial statement disclosure, or auditing scope or procedure or accounting principle. 21. GRAND CENTRAL FINANCIAL CORP. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GRAND CENTRAL FINANCIAL CORP. Dated: May 17, 1999 By: /s/ William R. Williams ----------------------------------- William R. Williams President and Chief Executive Officer (principal executive officer) Dated: May 17, 1999 By: /s/ John A. Rife ----------------------------------- John A. Rife Executive Vice President and Treasurer (principal accounting and financial officer) 22. EX-27 2 EXHIBIT 27
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB and is qualified in its entirety by reference to such financial statements. 0001070680 GRAND CENTRAL FINANCIAL CORP. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 2,376 2,588 0 0 4,776 62,871 62,632 64,387 372 142,661 80,179 29,902 710 0 0 0 19 31,851 142,661 1,297 880 97 2,274 817 1,110 1,174 0 11 944 322 322 0 0 219 0.12 0.12 3.53 15 0 0 0 379 7 0 372 372 0 0
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